FOLLOW THE MONEY Edited by Dr. Vugar Bayramov The report was prepared by Center for Economic and Social Development (CESD), Azerbaijan with funding of Partnership for Transparency Fund (PTF) Authors: Vugar Bayramov Leyla Aliyeva Kanan Karimzada Sevinc Yusifova Expert Yashar Habiboglu Zeynalov © Center for Economic and Social Development (CESD) Shirin Mirzeyev 76 “a”/33 Baku Az1002 Azerbaijan Phone; (99412) 497 5486 Fax; (99412) 5970691 Email; [email protected] Web; http://www.cesd.az Baku 2010 3 Contents Executive Summary 444 INTRODUCTION 888 Main Points on Oil Sector in Azerbaijan 191919 SOFAZ 212121 Monitoring of tenders announced for the Oguz-Qabala-Baku waterline project 33323222 Monitoring results 515151 Monitoring of tenders for reconstruction of the Samur-Absheron irrigation system 565656 Monitoring results 777777 Monitoring of tenders conducted for settlement of the problems of refugees and internally displaced persons who were forced to flee their native lands as a result of Armenian-Azerbaijan, Nagorno Karabakh conflict 818181 Monitoring results 109 Monitoring tenders announced for the Baku-Tbilisi-Kars (BTK) railroad project 112 Monitoring of tenders announced for the State Program on education of Azerbaijan youth in foreign countries in 2007-2015 120 Conclusions and Recommendations 124 Following suggestions were prepared and presented as a result of held researches and discussions with other NGOs. 134 REFERENCES 138 Abbreviation 140 4 Executive Summary The influx of petrodollars to the country in recent years has paved the way for considerable expenditures in the state budget and the State Oil Fund of the Azerbaijan Republic (SOFAZ). Azerbaijan’s oil revenues are mainly allocated to finance projects for road construction, transport, water supply, building of houses for refugees and IDPs. The major challenge now is to spend these revenues efficiently and transparently. In fact, all the problems stem from gaps in public procurements and lack of competitive environment whilst conducting tender procedures. With funding from USA-headquartered Partnership for Transparency Fund (PTF), our case study on tenders announced for the projects and programs funded by SOFAZ showed that even no tender had been carried out in restrained terms, while tenders claimed to have been conducted violated all provisions of the Law on Public Procurement. Since no announcement about tender and its results was published in organ of press; the names of all tenderers bidding for the project were not publicly disclosed; the announcement did not provide information about engineering study, the description of goods to be delivered and works to be performed. The requirements to contractors’ qualification Indices were not determined and assessed while selecting contractor. And all items of the Article “Conflict of interests at public procurements” of the law were violated. Those tenderer, having close links with organizer of tender, was declared the winner. In certain circumstances, amid tender procedures companies close to relevant agencies had entered into a formal consortium with qualified foreign companies, in order take advantage of selection criteria. This is why the performance and technical parameters of SOFAZ- financed projects are unavailable to the public. What is most remarkable is that some projects, nothing else than, have been under implementation for years and their termination or completion still seem impossible. Each project cost went 30-40 percent higher versus the initial contract values. In fact, the additional cost to the large-scale project should not exceed 15 percent in the worldwide practice. If more, the price surge is impacted by no economic, but other factors. It should be noted that all the projects funded by SOFAZ are requested by state agencies: the Oguz-Qabala-Baku water pipeline project, the implementing agency for which is Azersu Open 5 Joint Stock Company, whereas the Social Development Fund for Internally Displaced Persons (SDFIDP) has been entrusted as the main implementing agency to implement the project of the improvement of social condition of refugees and internally displaced persons, Melioration and Water Industry Company - the Samur Absheron irrigation system reconstruction project, the country’s Transport Ministry – the Baku-Tbilisi-Kars (BTK) project. Under the law, tender procurements must be implemented by these agencies. Since in compliance with the law applicability area of the Law on Public Procurement, all public procurements of goods, works and other services worth AZN 50,000 (fifty thousand) and more, performed by public bodies (including state share in charter fund of which is 30 and more percents at the account of state funds, loans and grants obtained by state and received under state guarantee) shall be conducted by methods of open tender. According to the documents on the SOFAZ-funded projects, all procurements have been conducted by methods of open tender. Official data show that 8 tenders have been carried out for the Samur Absheron irrigation system reconstruction project and another 8 tenders for the Oguz-Qabala-Baku water pipeline project. ALL tenders announced for the Baku-Tbilisi-Kars (BTK) railroad project have been conducted in Georgia and Turkey. There is no official information about the implanting agency and funder in respect of tenders conducted for settlement of the problems of refugees and internally displaced persons who were forced to flee their native lands as a result of Armenian-Azerbaijan, Nagorno Karabakh conflict. Nevertheless, sources in the State Oil Fund claim that all procurements had been conducted through open tenders. But the organizations that are curious about tender procedures are unaware of such procurements. The number and names of the companies bidding as tenderer for the SOFAZ-funded projects are not announced. In fact, the names of all tenderers first must be announced in order to prove that tender is not formal. The names of tenderers that bid for these projects - the Oguz-Qabala-Baku water pipeline project, the project of the improvement of social condition of refugees and internally displaced persons, the Samur Absheron irrigation system reconstruction project, and the Baku-Tbilisi-Kars (BTK) project. Executing agencies are reluctant in responding to related information inquiries. SOFAZ as the source of financing does not have oversight mechanisms for procurement contracts, utilization of funds. The dates of tender procedures are different in reports posted on its website. 6 Another nightside of these projects is that technical characteristics of procurements are protected as “secret”. If procurements were conducted by methods of transparent tender, technical characteristics would be open. Regarding the length of the Oguz-Qabala-Baku water pipeline, different figures are shown in both official and media reports, provided by contracting and implementing agencies. Technical parameters of the Samur Absheron irrigation system reconstruction project still remain unopened. Some activities within the project of the improvement of social condition of refugees and internally displaced persons (IDPs)have been postponed. For example, No bathrooms are designed for the houses in most regions built for refugees and IDPs. Finally, some contracts have been awarded to an inactive company. Consider delivery of glass fiber pipes and pipe materials within the Oguz-Qabala-Baku water pipeline project. According to Article 76 of the Law on Public Procurement, procurement agency prior to commencement of tender procedures shall set supposed price of goods (works and services) to be procured as per current legislation. If necessary, procurement agency shall attract professional assessors to fix supposed price of goods (works and services) to be procured. Procurement agency shall keep supposed price of goods (works and services) to be procured in secret until the day of opening of tender packages and shall use it to assess tender results. If price of any tender proposal significantly differs from supposed price of relevant goods (works and services), procurement agency shall be entitled to reject such offer. The SOFAZ-financed projects have violated these provisions. Overstated figures, appropriated funds point to falsification of procurements carried out for the projects, or there is no favourable environment to carry out public procurements. Baku-Tbilisi-Kars (BTK) the only project financed by the Oil Fund where its tender announcement reflects schedule of provision of services, Project’s performance characteristics, the volume of goods to be transported to an early stage, etc. Marabda-Kartsahi Railway Company, the authorized body for the Georgian government, organized all procurements on the project. For comparison, consider the Samur Absheron irrigation system reconstruction project: the Azerbaijan Joint Stock Company of Melioration and Water Economy, sometimes called Melioration and Water Industry Company, the project is entrusted to, has failed to conduct 7 procurements. Companies bidding for tender to supply materials for construction-assembly work are unknown. There is such impression that Georgia’s relevant agencies seem to be more experienced and transparent unlike their Azerbaijani friends. Although tender is organized in foreign countries, the Transport Ministry as one of the implementing partners, as well as co- chair of Coordination Council, which is oversight body with exclusive right to control credit provided to Georgia within the project has not held